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April 11, 2019

Proposed Legislation Would Prohibit Payment of Bonuses by a Debtor to Certain Employees


On March 6, 2019, Rep. Cheri Bustos (D-IL) introduced the No Bonuses in Bankruptcy Act of 2019 (H.R. 1557) "[t]o amend title 11 of the United States Code to prohibit the payment of bonuses to highly compensated individuals employed by the debtor and insiders of the debtor to perform services during the bankruptcy case, and for other purposes."

Generally, the bill would prohibit (or limit) a debtor from paying bonuses to any employee, consultant or contractor making more than $250,000 annually, or an insider.

Specifically, the bill amends Section 503 of the Bankruptcy Code by adding section (d) which provides that bonuses shall neither be allowed nor paid to (i) individuals employed by the debtor making more than $250,000 annually, (ii) insiders of the Debtor, or (iii) individuals to the extent such bonus would cause the individual to make more than $250,000 annually. An "individual employed by the debtor" includes, but is not limited to an employee, consultant or contractor.

"Bonus" is defined as a "transfer to, or obligation incurred for the benefit of, an individual employed by the debtor or insider of the debtor as compensation for services in an amount that (i) is in addition to the existing wages, salary, or base compensation of an insider of the debtor or individual employed by the debtor; and (ii) can be constructed as a form of retention, incentive, or reward related to the services provided to the debtor by the insider or the individual employed by the debtor." Sales commissions and payments/obligations under a collective bargaining agreement, however, are expressly excluded from the definition of bonus.

On April 8, 2019, the House Judiciary Committee referred the proposed bill to the Subcommittee on Antitrust, Commercial and Administrative Law.

… to be continued

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